Measuring Entrepreneurial Activity - OECD · -culture (library of knowledge) ... • the creation...

Measuring Entrepreneurial Activity

What Theory and Australian Case Studies Indicate

Richard SeymourThe University of Sydney

This presentation was given at the ISTAT-Eurostat-OECD Seminar on Entrepreneurship Indicators in Rome, December 6 and 7, 2006. The presentation was intending to clarify some of the theoretical frameworks that could be beneficial to any entrepreneurial indicators.

overview of presentation

• 300 years of theory in 5 minutes

• what’s the purpose of studying EA?

• some organising frameworks

• suggestions and next actions

as an academic...

• my aim is to develop & strengthen entrepreneurial activity

- teaching

- research

- outreach

• perspectives considered include

- people (including entrepreneurial community)

- society (including policy-makers)

- culture (library of knowledge)

This slide emphasises the author’s academic perspective, and how it can differ from some of the other perspectives (for example those of the policy-maker or entrepreneur)

300 years of theory

What’s this thing calledentrepreneurship?

• entrepreneurs buy at certain prices in the present and sell at uncertain prices in the future. The entrepreneur is a bearer of uncertainty (Cantillon, circa 1730)

• entrepreneurs are ‘pro-jectors’ (Defoe, 1887)

• entrepreneurs attempt to predict and act upon change within markets. The entrepreneur bears the uncertainty of market dynamics (Knight, 1921)

• the entrepreneur is the innovator who implements change within markets through the carrying out of new combinations. These can take several forms

1. the introduction of a new good or quality thereof2. the introduction of a new method of production3. the opening of a new market4. the conquest of a new source of supply of new

materials or parts5. the carrying out of the new organisation of any

industry (Schumpeter, 1934)

Themes that emerge over the next three slides include opportunity recognition, innovation, and creativity. The entrepreneur is the person who ‘stands between’ the opportunity and the creativity. Note that there is very little emphasis on ‘age’ of firms, with the vast majority of researchers ignoring firm age or firm structure (whether incorporated, partnership or self-employment) from the investigation.

• the entrepreneur is always a speculator. He deals with the uncertain conditions of the future. His success or failure depends on the correctness of his anticipation of uncertain events. If he fails in his understanding of things to come he is doomed… (von Mises, 1949)

• co-ordinators and arbitrageurs (Walras, 1954)

• entrepreneurial activity involves identifying opportunities within the economic system (Penrose, 1959)

• activities necessary to create or carry on an enterprise where not all markets are well established or clearly defined and/or in which relevant parts of the production function are not completely known (Leibenstein 1968, 1979)

• recognises and acts upon profit opportunities, essentially an arbitrageur (Kirzner, 1973)

• the creation of new organisations (Gartner, 1988)

• the essential act of entrepreneurship is new entry. New entry can be accomplished by entering new or established markets with new or existing goods or services. New entry is the act of launching a new venture, either by a start-up firm, through an existing firm, or via "internal corporate venturing” (Lumpkin & Dess, 1996)

• the field involves the study of sources of opportunities; the processes of discovery, evaluation, and exploitation of opportunities; and the set of individuals who discover, evaluate, and exploit them (Shane & Venkataraman, 2000)

• a context dependent social process through which individuals and teams create wealth by bringing together unique packages of resources to exploit marketplace opportunities (Ireland et al., 2001)

• the pursuit of opportunity beyond the tangible resources currently controlled (Harvard Business School, 2001; Stanford, 2001)

one Ozzie study• new ventures

- “I’m going down a very well trod path. So there’s nothing really very new about what I’m doing. Hundreds or thousands of people have done it before... There are a lot of barristers. And there’s only a finite amount of work” (Sole Trader)

- “oh... a lot of them [competitors] are trying to do what I’m trying to do... It’s pretty similar, that’s the reason why, in this field, the competition is very keen” (Company)

• established ventures

- “I really can’t think of a company that does the whole of the horse industry... we position ourselves as being different from that” (Company)

- “we went down a path that turned out to be not great and we just dropped it... We changed that model because it had some problems...” (Company)

This study, completed by Julia McIlwaine of The University of Sydney in 2006, showed that firm age has little importance with regards entrepreneurial activity. Her case study research highlights that it is a spurious connection for entrepreneurship researchers to seek.

enterprising human action

• Homo Economicus and Homo Ludens

• Analyst and Interpretivist

• seeing connections & synchronicity (self-efficacy, openness) with zealous pursuit (passion, drive)

Another important finding of McIlwaine’s study is that entrepreneurial activity includes enterprising human action. The entrepreneurs studied by McIlwaine demonstrated the importance of seeing connections & synchronicity (self-efficacy, openness) with zealous pursuit (passion, drive). This research is complemented by the author’s own work, which has found that both analysis and interpretation are demonstrated by entrepreneurs, with man the player (homo ludens) just as significant as man the economist (homo economicus).

what’s our purpose?

what’s our driving motivation?- if we’re an entrepreneur?- if we’re a policy maker?

- as society?

little a lot

little

a lot mogul entrepreneur

Value created for others (whether employees, government, customers)

Valu

e cr

eate

d/ca

ptur

ed fo

r ent

repr

eneu

r

social entrepreneurs

self-employed (subsistence

entrepreneurs)

benignhostil

e

environment

(Covin & Slevin 1989)

I NVC

Inspired by: Bruyat & Julien, 2000

This slide begins to organise the importance of ‘value’ in the study of entrepreneurship. It recognises that the value created by entrepreneurs can be captured by them, and/or by others. Furthermore, it recognises that this value creation can occur in benign or hostile environments. Traditionally, researchers studying the self-employed have focussed on those people creating jobs only for themselves (often with limited or variable success). In contrast, those researchers focussing on ‘gazelles’ or ‘born-globals’ or other rapidly-growing firms could be argued to be studying ‘entrepreneurs’ (the top right box in this framework). As an organising framework, the conceptualisation in intended to assist ‘categorise’ the vast and complex phenomena.

little a lot

little



Valu

e cr

eate

d/ca

ptur

ed fo

r ent

repr

eneu

r


benignhostil

e

environment


I NVC

interesting for entrepreneurship

policy-makers?

self-employed (subsistence

entrepreneurs)

Policy-makers may be interested in ‘shifting’ the value created by the various agents. This could be done by attempting to:- shift the environmental conditions from hostile to benign- assist the self-employed to create more value for others (whether by expanding the number of employees they have, the size of the business (creating more value for customers) or society (through taxes and other payments) and themselves- assist those creating/capturing value primarily for themselves also create value for others

little a lot

little



Valu

e cr

eate

d/ca

ptur

ed fo

r ent

repr

eneu

r


subsistence entrepreneurs

benignhostil

e

environment


I NVC

interesting forstudents/potential business people

?

organising frameworks

How can we frame this study?

The challenge for researchers is to understand what is happening during the process of entrepreneurial activity. Any organising framework needs to be sufficiently flexible to allow a researcher to understand the phenomena across multiple countries and economies (whether developed, developing or transitional).

natural, social & cultural environment

business environmentcompetition, environment, (national) economic structures

markets

meet marketneed

defined

capabilities

businessresources

property

technology

capital

employees

manage processes

leverage capabilities

In it’s simplest conceptualisation, it could be argued that business consists of the utilisation of resources (whether financial or property for example) through a firm’s capabilities (such as human capital) to meet a market need. These ‘business’ activities take place in a business environment (which could be competitive, dynamic etc.) and in a larger context of the natural, social and cultural environment.

In this conceptualisation, it is emphasised that the business activities (as opposed to entrepreneurial activities) are ‘static’ and known or knowable.

perceive opportunity

market needopportunity

under-deployedresources

opportunity

innovate

entrepreneurs

(von Mises 1949; Schumpeter 1934, 1947, Kirzner 1997; Ardichvili, Cardozo et al. 2003; Shane and Venkataraman, 2000)

create

invention/creativity

property

technology

capital

employees

perceive & recognise a fit

organise processes


This conceptualisation of ‘business’ can be contrasted with the conceptualisation of entrepreneurial activities. In this conceptualisation (drawing on the body of literature introduced above, and other Australian case studies) the two-faces of the Roman god Janus are invoked to emphasise that the entrepreneur is looking back to the resources (and combining them in new and creative ways) and new market opportunities. This process is referred to as innovating (note the difference between invention and innovation). The entrepreneur is acting in a dynamic and changing context.

innovationProduct-focus Prioritisation of Research Foci Market-focus

New Product Development (Marketing)

Problem Solving Perspective

(Management) Social Psychology

Communication & Cultural Industries

(Management)

Strategic Management

(Management) Entrepreneurship

Diffusion of Innovation (Marketing)

Synthesis – Innovation

Creation Resources Creativity

Involvement Setting the agenda Agenda setting

Planning Team composition Setting the stage Generating deal flow

Planning

Discovery Producing the ideas Search Matching

Screening Selection Screening

Scoping Evaluation

Selection

Building business case

Team organisation of work

Testing & implementing

ideas Capabilities Due diligence Refining &

restructuring

Development Leadership of project Processing Structuring

Testing & Validation

Process performance Clarifying

Processing & Development

Launch Exploitation Routinizing Launch

Diffusion Opportunity

Review Outcome of Assessment Cashing out Consequences

Opportunity

Stag

es o

f dev

elop

men

t

‘Drilling down’ to understand this process of ‘innovation’, literature is reviewed from marketing, social psychology, management and entrepreneurship. This literature can be organised into 4 stages of innovation:1) planning2) selection3) processing & development4) launch

perceive opportunity



opportunity

innovate

entrepreneurs

(von Mises 1949; Schumpeter 1934, 1947, Kirzner 1997; Ardichvili, Cardozo et al. 2003; Shane and Venkataraman, 2000)

create


property

technology

capital

employees

plan

select

process/develop

launch

These four stages of innovation are now used to populate the framework of entrepreneurship.

so working towards a definition...

• entrepreneurial activity is all about...

the enterprising human action associated with the creation and exchange of value through the identification and exploitation of opportunities, innovation and/or creativity

This definition is intended to be flexible and yet also define the field for researchers and the indicators of entrepreneurial activity.

components of EA

• enterprising human activity that

- assembles unique bundles of resources

- perceives & identifies opportunities

- innovates (plans, selects, processes/develops, launches)

- creates (captures) & exchanges value



perceive



opportunity

innovatecreate


property

technology

capital

employees

plan

select

process/develop

launch

returning to the inclusion of the business and other environmental influences...



perceive



opportunity

innovatecreate


property

technology

capital

employees

perceive & recognise a fit

organise processes


property rights

capital

labour market

R&D

creativity

business education logistics

education networks

business advice

fair trade commission

trade agreements

access to markets

commun-ications

taxation

etc.

etc. etc. etc.

accessenvironment society

incentives

This framework can then be used to explore how difference ‘indicators’ of entrepreneurial activity could be organised. For example, research and development spending, or numbers of patents registered, may indicate the dynamic nature of resources created by/for entrepreneurs. Levels of business or other education may indicate how well the ‘innovative’ capabilities of the entrepreneur are developing. Similarly, the structure of markets may indicate how ‘easy’ or possible it is to identify changing markets.

All of this activity takes place in the environment. Returning to that earlier conceptualisation of benign vs. hostile environments, this can be indicated by any number of measures, including taxation levels, trade agreements, access to markets.



perceive



opportunity

innovatecreate


property

technology

capital

employees

plan

select

process/develop

launchvalue creation• customers - revenue (EVA)• society - taxes• entrepreneurial community - employees• individual - net profit after taxchanges in these...

returning to the ‘purpose’ of all this analysis. The purpose is to create, capture and exchange value through new products, new markets and new processes. Please contact the author for more information, or for clarification of any of the references or points. A published paper is forthcoming...

next steps

• seeking further funding for major pilot study in Australia

• 2 research projects to include developing economy context (India/Pakistan and China) in 2007

• 2 research project to include remote indigenous communities, one in context of agriculture...

• involvement, direction, $ & participation most welcome

contact details

Richard SeymourSesquicentennial Lecturer in International Entrepreneurship

Discipline of International BusinessThe University of SydneySydney NSW 2006Australia

+61 2 9036 [email protected]

mailto:[email protected]

mailto:[email protected]

Measuring Entrepreneurial Activity - OECD · -culture (library of knowledge) ... • the creation...

Documents

Transcript of Measuring Entrepreneurial Activity - OECD · -culture (library of knowledge) ... • the creation...